Cuts in federal aid will force cities to tighten their belts. But they may share in state windfalls from US tax reform

By
Robert P. Hey, Staff writer of The Christian Science Monitor /
December 30, 1986

Washington

Will America's cities have enough money to house the poor, fix the potholes, and collect the garbage? City officials are more concerned than usual about their finances. Federal spending for urban programs has declined considerably over the past six years, and the Reagan administration has proposed further trims in several areas.

A new survey of city officials by the National League of Cities finds that more than a third of those polled say they will have to raise taxes or cut services this year.

Funds for the popular and flexible community-development block grants have been trimmed by 40 percent in the same time. Now the Reagan administration has proposed reducing the $3 billion program by another $375 million. Eugene T. Lowe, assistant executive director of the United States Conference of Mayors, calls this ``the last big program for the cities.''

And this year Uncle Sam, citing the federal budget deficit, ended the US revenue-sharing program, which had aided many cities.

Congress is likely to devote considerable attention in 1987 to the question of which federal programs to aid America's cities should be continued and how much money should be spent.

Yet for city officials a silver lining could be lurking amid all these clouds. ``Most states will see revenues go up because of [federal] tax reforms,'' says Robert McIntyre, director of federal tax policy for Citizens for Tax Justice. ``Most of the states use the federal government's definition of what's taxable,'' he says. As a result, when Congress this year closed a lot of loopholes in federal taxes, one result was to close corresponding loopholes in state tax laws.

If states take no action, their revenues will soar. ``They'll have a lot of different options,'' Mr. McIntyre says. ``One of them is to give more money to their cities.''

For many mayors the single biggest need is housing for low- and moderate-income residents. Trims in federal spending, especially in housing, are expected to dominate next month's midwinter meeting of the US Conference of Mayors in Washington.

``Not nearly enough'' low-income housing exists now, Mr. Lowe says. The administration has been moving to replace virtually all federally subsidized construction of low-income housing with vouchers, which enable poor Americans to find their own housing with Uncle Sam paying a substantial share of the rent.

But urban officials say vouchers work well only where plenty of low-income housing is vacant. In many cities, such as New York, it is scarce. In such cities, these officials say, new construction is needed; but they add that this year's federal tax reform removed major financial incentives to builders to construct low-cost housing.

Uncle Sam now helps 4.2 million households, and seeks to offer an additional 79,000 vouchers this year. But according to Lowe, an estimated 15 million households actually need a government subsidy. Lowe says: ``This leaves a very big gap.''